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The geography of capital flows: what we can learn from benchmark surveys of foreign equity holdings

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  • Francis E. Warnock
  • Molly Mason
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    Abstract

    To provide insight into the accuracy of U.S. data on international equity transactions, we compare estimates of U.S. holdings of equities in over 40 countries with actual holdings given by comprehensive U.S. benchmark surveys. If the rate of return used to revalue U.S. holdings in a given country is accurate, accurate holdings estimates imply accurate transactions data. For some countries, such as Canada and much of Latin America, the holdings estimates are quite accurate. For the majority of countries, however, there is a great disparity between our estimates and actual amounts, likely because U.S. data on international equity transactions record the country of the transactor, not the country of the issuer. Our estimates are far too high for financial centers--because many U.S. transactions that go through these countries involve securities issued in other countries--and far too low in most other countries, particularly in Europe and Asia. To illustrate the potential pitfalls of using estimated country-specific holdings data, we briefly present two cases in which the use of actual data leads to different conclusions. One case examines the determinants of U.S. equity holdings across countries; the other concerns the turnover rate of foreign equity portfolios.

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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 688.

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    Date of creation: 2000
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    Handle: RePEc:fip:fedgif:688

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    Keywords: International finance ; Capital movements;

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    References

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    1. R Portes & H Rey, 2000. "The Determinants Of Cross-Border Equity Flows," CEP Discussion Papers dp0446, Centre for Economic Performance, LSE.
    2. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
    3. Michael J. Brennan. and H. Henry Cao., 1997. "International Portfolio Investment Flows," Research Program in Finance Working Papers RPF-271, University of California at Berkeley.
    4. Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June.
    5. Geert Bekaert & Campbell R. Harvey, 1998. "Capital Flows and the Behavior of Emerging Market Equity Returns," NBER Working Papers 6669, National Bureau of Economic Research, Inc.
    6. Alan G. Ahearne & William L. Griever & Francis E. Warnock, 2000. "Information costs and home bias: an analysis of U.S. holdings of foreign equities," International Finance Discussion Papers 691, Board of Governors of the Federal Reserve System (U.S.).
    7. Lois E. Stekler & Edwin M. Truman, 1992. "The adequacy of the data on U.S. international financial transactions: a Federal Reserve perspective," International Finance Discussion Papers 430, Board of Governors of the Federal Reserve System (U.S.).
    8. Jun-Koo Kang & Rene M. Stulz, 1995. "Why Is There a Home Bias? An Analysis of Foreign Portfolio Equity Ownership in Japan," NBER Working Papers 5166, National Bureau of Economic Research, Inc.
    9. Geert Bekaert & Campbell R. Harvey & Robin L. Lumsdaine, 1998. "Dating the Integration of World Equity Markets," NBER Working Papers 6724, National Bureau of Economic Research, Inc.
    10. Philip Lane & Gian Maria Milesi-Ferretti, 2001. "THE EXTERNAL WEALTH OF NATIONS: Measures of Foreign Assets and Liabilities For Industrial and Developing Countries," CEG Working Papers 20012, Trinity College Dublin, Department of Economics.
    11. Taylor, Mark P & Sarno, Lucio, 1997. "Capital Flows to Developing Countries: Long- and Short-Term Determinants," World Bank Economic Review, World Bank Group, vol. 11(3), pages 451-70, September.
    12. Chuhan, Punam & Claessens, Stijn & Mamingi, Nlandu, 1998. "Equity and bond flows to Latin America and Asia: the role of global and country factors," Journal of Development Economics, Elsevier, vol. 55(2), pages 439-463, April.
    13. Lois Stekler, 1990. "Adequacy of International Transactions and Position Data for Policy Coordination," NBER Chapters, in: International Policy Coordination and Exchange Rate Fluctuations, pages 347-372 National Bureau of Economic Research, Inc.
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    Cited by:
    1. Ahearne, Alan G. & Griever, William L. & Warnock, Francis E., 2004. "Information costs and home bias: an analysis of US holdings of foreign equities," Journal of International Economics, Elsevier, vol. 62(2), pages 313-336, March.

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